renders those receiving them partners, says that "without discussing those decisions, and determining just how far they reach, it is sufficient to say that they are not controlling here, that the rule remains in this state as it has long been, and that we should be governed by it until here, as in England, the Legislature shall see fit to abrogate it." * * * The doctrine that persons may be partners as to third persons, although not so as between themselves, and although the contract of partnership contains express provisions repudiating such a relation, has been too firmly established in this state by repeated decisions to be now disregarded by its courts. See cases cited in Leggett v. Hyde. It is claimed that this doctrine has been practically overruled in this state by the decisions in this court of Richardson v. Hughitt, 76 N. Y. 55, 32 Am. Rep. 267, Burnett v. Snyder, 76 N. Y. 344, Eager v. Crawford, Id. 97, Curry v. Fowler, 87 N. Y. 33, 41 Am. Rep. 343, and Cassidy v. Hall, 97 N. Y. 159. We do not think these cases had the effect claimed. They were all cases distinguished by peculiar circumstances, taking them out of the operation of the general rule. It cannot be disputed but that a loan may be made to a partnership firm on conditions by which the lenders may secure a limited or qualified interest in certain profits of the firm, without making them partners in its general business; but that is not this case.

[After reviewing the foregoing cases, the opinion continues:] It cannot reasonably be claimed that either of these cases is an authority for the reversal of this judgment. Whatever might have been their bearing if they related to the loan of money alone, we will not say; but, when connected with the circumstance that the defendant was expected to render future services as a principal, and furnish further financial aid, with a certain supervision over the conduct of the business, we think this case is clearly distinguishable from those cited.

In the view taken of this case, it is quite immaterial whether the plaintiff extended the credit to Gorham alone or not, as the defendant was held liable upon the ground that, as to third persons, he was a partner; and it did not affect that liability, whether the plaintiff knew the fact or not.

The exception to the ruling of the court sustaining the objection to the question put to plaintiff on cross-examination, as to whom the credit was furnished, was not well taken, as the fact sought to be proved was immaterial. The judgment should therefore be affirmed.

II. DEVELOPMENT OF THE MODERN DOCTRINE

COX AND WHEATCROFT v. HICKMAN.

(House of Lords, 1860. 8 H. L. Cas. 268.)

B. and J. T. Smith, as partners under the name of B. Smith & Son, were engaged in business as iron masters and corn merchants. Becoming financially embarrassed, a meeting of creditors was held and a deed of assignment executed by the Smiths, as parties of the first part, certain of the creditors, as trustees, of the second part, and the general scheduled creditors, among whom were the trustees, of the third part. The deed assigned the property of the partnership to trustees, and empowered them to carry on the business under the name of the Stanton Iron Company; to execute all contracts and instruments necessary to carry it on; to divide the net income derived among the creditors ratably (such income to be deemed the property of the assignors), with the power to the majority of the creditors, assembled at a meeting; to make rules for conducting the business, or to put an end to it altogether; and, after the debts had been discharged, the property was to be reconveyed to the Smiths. Cox and Wheatcroft were named among the trustees. Cox never acted. Wheatcroft, after acting for six months, resigned. Afterwards the other trustees, who continued the business, became indebted to Hickman for goods supplied to the company, and gave him bills of exchange, accepted by themselves: "Per proc. The Stanton Iron Company." This was an action on the bills of exchange thus given.

The cause was tried in 1856, before the late Lord Chief Justice Jervis, when a verdict was found for the defendants; but on motion on leave reserved the verdict was entered for the plaintiff. 18 C. B. 617. The case was taken to the Exchequer Chamber, when three judges (Justices Coleridge, Erle, and Crompton) were for affirming the judgment of the Common Pleas, and three other judges (Barons Martin, Bramwell, and Watson) were for reversing it. 3 C. B. (N. S.) 523. The judgment, therefore, stood, and was afterwards brought up to this House.

The judges were summoned, and Lord Chief Baron Pollock, Mt. Justice Wightman, Mr. Justice Williams, Mr. Justice Crompton, Mr. Baron Channell, and Mr. Justice Blackburn, attended.1

Lord CRANWORTH. In this case the judges in the Court of Exchequer Chamber were equally divided, and unfortunately the same difference of opinion has existed among the learned judges who attended this House during the argument at your Lordships' bar. Except, therefore, from an examination of the grounds on which their opinions are founded, we can derive no benefit in this case from their as

1 The opinions of the judges summoned are omitted.

sistance. We cannot say that in the opinions delivered in this House there is more authority in favor of one view of the case than of the other. We must not, however, infer that your Lordships have not derived material aid from the opinions expressed by the judges. These opinions have stated the arguments on the one side and the other with great clearness and force, and what we have to do now is to decide between them.

In the first place let me say that I concur with those of the learned judges who are of opinion that no solid distinction exists between the liability of either defendant in an action on the bills and in an action for goods sold and delivered. If he would have been liable in an action for goods sold and delivered, it must be because those who were in fact carrying on the business of the Stanton Iron Company were carrying it on as his partners or agents; and, as the bills were accepted, according to the usual course of business, for ore supplied by the plaintiff, I cannot doubt that, if the trade was carried on by those who managed it as partners or agents of the defendant, he must be just as liable on the bills as he would have been in an action for the price of the goods supplied. His partners or agents would have the same authority to accept bills in the ordinary course of trade as to purchase goods on credit.

The liability of one partner for the acts of his copartner is in truth the liability of a principal for the acts of his agent. Where two or more persons are engaged as partners in an ordinary trade, each of them has an implied authority from the others to bind all by contracts. entered into according to the usual course of business in that trade. Every partner in trade is, for the ordinary purposes of the trade, the agent of his copartners, and all are therefore liable for the ordinary trade contracts of the others. Partners may stipulate among themselves that some one of them only shall enter into particular contracts, or into any contracts, or that as to certain of their contracts none shall be liable except those by whom they are actually made; but with such private arrangements third persons, dealing with the firm without notice, have no concern. The public have a right to assume that every partner has authority from his copartner to bind the whole firm in contracts made according to the ordinary usages of trade.

This principle applies, not only to persons acting openly and avowedly as partners, but to others who, though not so acting, are by secret or private agreement partners with those who appear ostensibly to the world as the persons carrying on the business.

In the case now before the House, the Court of Common Pleas decided in favor of the respondent that the appellant, by his execution. of the deed of arrangement, became, together with the other creditors who executed it, a partner with those who conducted the business of the Stanton Iron Company. The judges in the Court of Exchequer Chamber were equally divided, so that the judgment of the Court of

Common Pleas was affirmed. The sole question for adjudication by your Lordships is whether this judgment thus affirmed was right.

I do not propose to consider in detail all the provisions of the deed. I think it sufficient to state them generally. In the first place there is an assignment by Messrs. Smith to certain trustees of the mines and all the engines and machinery used for working them, together with all the stock in trade, and in fact all their property, upon trust to carry on the business and, after paying its expenses, to divide the net income ratably amongst the creditors of Messrs. Smith, as often as there shall be funds in hand sufficient to pay one shilling in the pound, and, after all the creditors are satisfied, then in trust for Messrs. Smith.

Up to this point the creditors, though they executed the deed, are merely passive; and the first question is, what would have been the consequence to them of their executing the deed if the trusts had ended there? Would they have become partners in the concern. carried on by the trustees mérely because they passively assented to its being carried on upon the terms that the net income-i. e., the net profits-should be applied in discharge of their demands? I think not. It was argued that, as they would be interested in the profits, therefore they would be partners. But this is a fallacy. It is often said that the test, or one of the tests, whether a person not ostensibly a partner is nevertheless in contemplation of law a partner is whether he is entitled to participate in the profits. This, no doubt, is in general a sufficiently accurate test; for a right to participate in profits affords cogent, often conclusive, evidence that the trade in which the profits have been made was carried on in part for or on behalf of the person setting up such a claim. But the real ground of the liability is that the trade has been carried on by persons acting on his behalf. When that is the case, he is liable to the trade obligations, and entitled to its profits, or to a share of them. It is not strictly correct to say that his right to share in the profits makes him liable to the debts. of the trade. The correct mode of stating the proposition is to say that the same thing which entitles him to the one makes him liable to the other, namely, the fact that the trade has been carried on on his behalf; i. e., that he stood in the relation of principal towards the persons acting ostensibly as the traders by whom the liabilities have been incurred, and under whose management the profits have been made.

Taking this to be the ground of liability as a partner, it seems to me to follow that the mere concurrence of creditors in an arrangement under which they permit their debtor, or trustees for their debtor, to continue his trade, applying the profits in discharge of their demands, does not make them partners with their debtors or the trustees. The debtor is still the person solely interested in the profits, save only that he has mortgaged them to his creditors. He receives the benefit of the profits as they accrue, though he has precluded himself from

GIL.PART.-3

applying them to any other purpose than the discharge of his debts. The trade is not carried on by or on account of the creditors, though their consent is necessary in such a case, for without it all the property might be seized by them in execution. But the trade still remains the trade of the debtor or his trustees. The debtor or the trustees are the persons by or on behalf of whom it is carried on.

I have hitherto considered the case as it would have stood if the creditors had been merely passively assenting parties to the carrying on of the trade, on the terms that the profits should be applied in liquidation of their demands: But I am aware that in this deed special powers are given to the creditors, which, it was said, showed that they had become partners, even if that had not been the consequence of their concurrence in the previous trust. The powers may be described briefly as, first, a power of determining by a majority in value. of their body that the trade should be discontinued, or, if not discontinued, then, secondly, a power of making rules and orders as to its conduct and management.

T

Those powers do not appear to me to alter the case. The creditors might, by process of law, have obtained possession of the whole property. By the earlier provisions of the deed they consented to abandon that right, and to allow the trade to be carried on by the trustees. The effect of these powers is only to qualify their consent. They stipulate for a right to withdraw it altogether, or, if not, then to impose terms as to the mode in which the trusts to which they had agreed should be executed. I do not think that this alters the legal condition of the creditors. The trade did not become a trade carried on for them as principals, because they might have insisted on taking possession of the stock, and so compelling the abandonment of the trade, or because they might have prescribed terms on which alone it should be. continued. Any trustee might have refused to act if he considered the terms prescribed by the auditors to be objectionable. Suppose the deed had stipulated, not that the creditors might order the discontinuance of the trade, or impose terms as to its management, but that some third person might do so, if, on inspecting the accounts, he should deem it advisable. It could not be contended that this would make the creditors partners, if they were not so already; and I can see no difference between stipulating for such a power to be reserved to a third person and reserving it to themselves.

I have, on these grounds, come to the conclusion that the creditors did not, by executing this deed, make themselves partners in the Stanton Iron Company, and I must add that a contrary decision would be much to be deprecated. Deeds of arrangement, like that now before us, are, I believe, of frequent occurrence; and it is impossible to imagine that creditors who execute them have any notion that by so doing they are making themselves liable as partners. This would be no reason for holding them not to be liable, if, on strict principles of mercantile law, they are so; but the very fact that such deeds are